Reporting and Monitoring a Delegated Underwriting Authority

Running a successful insurance program requires constant monitoring of the portfolio to identify performance trends as well as overall profit or loss underwriting performance. In addition, claims data needs to be examined for any trends in loss activity which can then be used to adjust rates, or to adjust policy terms if required.

Commonly-used tools to achieve these objectives are as follows:

Premium Reporting

Each month a report should be produced showing not only written premium but also the premium that has been paid or received. Deductions such as the program manager’s commission, producer commission and taxes should be deducted and displayed showing the net premium to the insurer.  

In addition, it will usually be necessary to compile a risk bordereaux showing all risks broken down by insured, policy inception date and individual premium. An insurer will also normally require notification of any complaints by policyholders to ensure that the book is being properly managed. 

Claims Reporting

A claims report will also need to be created showing the total reported claims broken down by paid and outstanding claims. In addition, it will usually be necessary to compile a claims bordereaux showing all claims broken down by insured, date of loss and also by policy inception date. 

Triangulations and Point in Time Studies

Once the above reports have been created, two further reports should be created showing as follows:

Gross Net Written Premium vs Incurred Losses

• The premium written for each month and the total written premium to date.
• The commissions for each month and the total commissions to date.
• The net premium for each month and the total net premium to date.
• Losses incurred (paid and outstanding) for each month and the total losses incurred to date.
• The gross loss ratio calculated by taking the incurred losses as a proportion of the gross premium for each month and the total to date.

 Paid Premiums vs Paid Claims

• The premium received for each month and the total received premium to date.
• The commissions for each month and the total commissions to date.
• The net premium for each month and the total net premium to date.
• Losses incurred (paid and outstanding) for each month and the total losses incurred to date.
• The loss ratio calculated by taking the paid losses as a proportion of the premium received for each month and the total to date.

Once this model has been produced on a spreadsheet, it can then be used as a tool to predict future performance. One way to do this is to create a separate line for each year of account so that the current year’s loss ratio can be compared to previous years and then trended forward according to prior year’s loss development. 

Taking Corrective Measures

Sound reporting and analysis by the program manager should create a stronger relationship and trust with an insurance partner. It also means that steps can more easily be taken to address areas where the pricing or coverage is deficient.

Possible methods that can be taken to improve a portfolio that is not achieving the required underwriting margin can include any of the following: 

• Increasing the premiums, either for specific types of risk or across the board.
• Reducing commissions to create a greater net premium to the insurer.
• Adjusting the coverage should one particular part of the insurance policy be creating losses.
• Adjusting the underwriting guidelines so that certain types of risks cannot be accepted. 

Having proper data and underwriting information not only helps identify which of these measures should be taken, it also provides the required information should the insurance partner withdraw or cease trading and a new insurance partner is needed to be sought.